Senator Liu’s Earned Income Tax Credit Passes Senate Committee

A bill that creates a state refundable Earned Income Tax Credit to help working families make ends meet and lift hundreds of thousands of Californians out of poverty passed a Senate Committee on April 29, Sen. Carol Liu announced.

The Senate Governance and Finance Committee approved SB 38, which now goes to the Senate Appropriations Committee.

“This tax credit will help struggling families, increase upward mobility and help rebuild the middle class in California by giving low- and middle-income earners more purchasing power to spend, save, and recover from economic hardship,” said Liu, D- La Cañada Flintridge.

The bill creates a new state tax credit that builds on the federal EITC, which is one of the nation’s most effective tools for reducing poverty among working families. Research shows that the EITC benefits poor children by raising family income, boosting academic achievement, and improving health and well-being. More than 20 states have already created a state-level tax credit.

The bill establishes a refundable state EITC equal to 30 percent of the federal EITC for eligible individuals with qualifying children. The average state credit for families with children in the bottom fifth of the income distribution would be $1,045, according to estimates by the Institute of Taxation and Economic Policy.

“At a time when more than one in four California children live in poverty, SB 38 offers California the opportunity to reduce the state’s high poverty rate by building on a proven policy to create refundable California Earned Income Tax Credit,” said Alex Johnson, Executive Director of Children’s Defense Fund-California. “This is an investment we must make now to improve child health and well-being and protect children against the lifelong consequences of poverty.”

The bill would give more than 10 million Californians, primarily families with children, an economic boost by allowing them to keep more of their earnings. A California EITC as outlined in SB 38 would also help rebalance the state’s tax system, which currently asks low-income families to pay a larger share of their income in state and local taxes than higher-income families.

The Legislature has until September 11, 2015 to pass any bills submitted this year. Governor Brown must sign or veto bills by October 11.